What are Mortgage Points?

If you’re in the market for a new home loan (or a refinance), you might have come across the term “mortgage points.” This term is confusing for most buyers and homeowners because “points” doesn’t seem like the right word to describe what mortgage points actually do.

So, in this article, we’re clearing up the confusion! We’ll explain:

• What mortgage points are,

• How mortgage points work, and

• How to tell if mortgage points are worth it.

Here’s what you need to know about mortgage points.

What are Mortgage Points?

Mortgage points (sometimes called discount points) are simply deductions in the interest rate on your home loan. Instead of paying the interest rate your lender offers, you can buy mortgage points from your lender to reduce that rate.

The goal of mortgage points is to save money in the long term by paying a fee upfront to lower your interest rate for the term of the loan. The lower your interest rate, the less you spend on interest each month. And this reduced your total interest expense over the term of the loan.

How do Mortgage Points Work?

When you buy a mortgage point, you pay an upfront fee (typically 1% of the loan amount) to reduce your interest rate by a set amount (typically a quarter of a percent).

So, for example, if you are borrowing $800,000 to buy a $1,000,000 home, a mortgage point would cost $8,000 (1% of $800,000). And if your interest rate would have been 6%, your new, reduced rate would likely be 5.75% (a quarter of a percent less than the original 6% rate).

Are Mortgage Points Worth It?

Mortgage points can be worth it if you keep the mortgage long enough to recoup your initial investment. If you sell the house or refinance your home loan before saving enough in interest to cover the upfront fee you paid, you would lose money by purchasing points.

For example, if you bought two mortgage points on an $800,000 loan to reduce the rate from 6% to 5.5%, it would cost you $16,000 upfront. But it could save you around $254 per month.

If you divide your $16,000 upfront expense by the $254 per month savings, you find that it would take you around 63 months of mortgage savings to recover your initial mortgage point investment. So you would need to own the home without refinancing for five years and three months to start seeing benefits from your mortgage points.

Sticking with the same figures from this example, if you keep your home for a full 30-year mortgage term without refinancing, you could potentially save $91,440 in total interest expense by purchasing those two mortgage points!

Make the Most of Your Home Purchase with Expert Guidance from Sequoia Real Estate

The experienced real estate agents at Sequoia Real Estate are proud to offer knowledgeable guidance on your next purchase while making the homebuying process as smooth and enjoyable as possible!

While we don’t offer direct mortgage advice (we can connect you to a full-time mortgage expert for that), we keep current on real estate financing topics so that we can answer your questions about how the home loan process works.

Whether you’re ready to start looking for your new home today, or you simply want to discuss your options with a well-qualified expert, contact Sequoia Real Estate today for a friendly, free consultation!

Fixed-Rate vs. ARM: Which Is Right for Today’s Homebuyers?

Fixed-rate mortgages have been the standard for American homebuyers for years. But with the 2022 interest rate hikes, today’s buyers are wondering if an adjustable-rate mortgage (ARM) is a better fit for the current market.

In this article, we’ll look at fixed-rate vs. adjustable-rate mortgages to help you decide which is the better option for you.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage is a home loan in which the interest rate is locked in for the term of the loan. For example, if you get a 30-year fixed-rate mortgage with a 7% interest rate, your rate will remain 7% until your loan is either paid in full or refinanced, regardless of changes in going market rates.

Benefits of a Fixed-Rate Mortgage

The primary benefit of a fixed-rate mortgage is stability. Since your rate stays the same, you won’t see any unexpected rate hikes that could cause your mortgage payments to jump. This makes budgeting easier since you know how much your principal and interest payments will be through the entire term of your loan. It also means that the risk associated with changing interest rates is transferred from you to your lender. If interest rates go up, you keep your lower interest rate, regardless of the rates the lender is charging new borrowers.

Cons of a Fixed-Rate Mortgage

The downside of a fixed-rate mortgage is that your initial rate could be higher with a fixed rate than what you would pay on an adjustable rate. There is also a chance that rates could go down, leaving you locked in at a higher rate. However, as long as you maintain solid credit, income, and debt levels, you should be able to refinance your loan to get the lower going rates if they do go down in the future.   

What is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage is a home loan in which the interest rate fluctuates with the going market rate.

In most cases, you will have an initial fixed-rate period (five years, for example) in which the rate doesn’t change. But after that period, the rate can go up and down.

Pros of an ARM

There are two main benefits of ARMs:

1. If interest rates go down, your rate will automatically be adjusted; you won’t need to do anything to get the lower rate.

2. The introductory rate is typically lower for an ARM than for a fix-rate loan.

Cons of an ARM

The potential downside to an ARM is that your rate would go up if market rates increase. This would mean a sudden increase in your monthly mortgage payments. And, depending on the severity of the rate change, the payment increase could be steep. This can make it difficult to budget accurately.     

Are You Looking to Buy?

If you’re in the market for a new home, the experienced team here at Sequoia Real Estate is excited to help! We can help you find your dream home and connect you with a reputable lender who can guide you on the right type of mortgage for your unique situation. Contact us today for a friendly, free consultation!

3 Tips to Help Sellers Get Ahead of the Market

With market changes forecasted for 2023, today’s sellers are wondering what they can do to get ahead of the changing market. And the real estate experts at Sequoia Real Estate have three tips to help you do just that!

Here are three ways you can get ahead of the market in 2023.   

List Early in the Season

Real estate sales traditionally slow down during the winter when fewer buyers are looking to make a move. But then the market heats back up for the spring and summer seasons. Sellers who want to get ahead of the market are preparing now so that they are ready to capitalize on the influx of buyers in the spring.

Listing your home for sale is a bit of a process. You need to make any necessary repairs or upgrades, find an agent to represent you, and have photos and videos taken before your listing can hit the market. So if you want to be ready to meet buyers in the spring, get the ball rolling now.     

Anticipate Competition

In the buying frenzy of the pandemic years, there were not enough houses to meet the high buyer demand. So homes would be sold within days of being listed on the market. But with the interest rate hikes of 2022, there isn’t as much incentive for buyers, so fewer buyers are looking for homes. This means sellers need to work a little harder to stand out among the other listings.

As you prepare your property for the market, consider how your listing will compare to buyers’ other options in terms of:

• Condition. Can you make any cost-effective upgrades to set your home apart from the competition?

• Staging. How can you help buyers imagine living their best lives in this house?

• Pricing. Does your list price represent fair market value?

• Marketing. How can you make your listing stand out as buyers browse online? And how can you reach buyers who might not know about your listing?

Get an Experienced Agent in Your Corner

Listing your home for sale might be a complex process. But when you hire a well-qualified real estate professional, the most difficult parts are handled for you. A good seller’s agent can:

• Advise you on staging your property to appeal to a wide range of buyers.

• Research comparable properties to make sure your listing price is competitive without leaving money on the table.

• Create a comprehensive marketing plan, designed for maximum exposure to qualified buyers.

• Advise you on incoming offers.

• Negotiate to get you the best price and best terms possible.

• Coordinate the escrow period to make sure the deal closes smoothly.

Your agent directly impacts the success of your sale. So it’s worth investing a little time in choosing the right listing agent for you.

Whether you’re ready to list your home now, or you just want to explore your options with a real estate professional in a no-pressure environment, contact Sequoia Real Estate today. We can match you with a licensed real estate expert who will be happy to take the time to answer all your questions and help you get ahead of the market!

5 Things You Need To Qualify for a Home Loan

To qualify for a home loan, you need to meet some financial criteria. Before a bank will loan you money to buy a home, they want to make sure that you are able to afford the mortgage payments and that you have a solid history of paying your other bills on time.

To show your lender that you’re ready to take on a home loan, you’ll need these five things.

1. Fair Credit

Your credit score shows how responsibly you have managed debt in the past. The higher your score, the more “credit-worthy” you seem to lenders.

Your FICO credit score is based on five factors, some more important than others:

1. Payment history (35% of your score). Have you made payments on time and in full?

2. Amounts owed (30%). Are you borrowing less than the maximum allowed? With credit cards, for example, you should try to keep the balance under 30% of the credit limit.

3. Length of credit history (15%). How long have your accounts been open?

4. New credit (10%). Have you recently applied for new accounts? Opening too many accounts at once is a red flag for lenders.

5. Credit mix (10%). Some debts (like student loans) are viewed more favorably than other debts (like credit cards).

Most lenders expect to see a credit score of at least 620 from home loan applicants. But it is possible to get a loan if your credit is slightly lower as well.

If you’re not quite there yet, consider a few ways to boost your credit score.

2. Proof of Income

To confirm that you make enough money to afford the mortgage payment, lenders need to see proof of your income. The most common documentation for this purpose includes:

• Pay stubs,

• Bank statements, and

• Tax returns.

You might need a combination of the above to give a complete picture of your income. For example, if you’re self-employed, you won’t have pay stubs, but your bank statements will show the recent credits to your account, and your tax returns will show your annual income.

3. An acceptable DTI

DTI stands for debt-to-income ratio. This number tells a lender how much of your income is already allocated to pay on other debts. To calculate your DTI, simply divide your total monthly debt payments by your total monthly income. Requirements vary by lender, but most likely to see a DTI below 36-40%.

4. A Down Payment and/or Closing Costs

Most buyers will need a down payment. This is the amount of the purchase price that you’re paying out of your own savings. The required down payment depends on your loan type. Conventional loans, for example, require at least 3% down, while FHA loans require at least 3.5% down. Having said that, it is also possible to get loans with no money down!

Whatever loan type you choose, you will need to pay closing costs. These costs cover things like loan origination fees, appraisals, and document processing fees. Closing costs vary greatly, but buyers should generally budget 3-6% of the purchase price for closing costs.

By the way, it is possible to get financial assistance with closing costs. Under the right market conditions, the seller might even be willing to cover some of these costs for you. A good buyer’s agent can help you understand your options.

5. Reserve Funds

Part of being a homeowner is taking financial responsibility for the maintenance and care of the property. If the water heater needs replaced or the roof needs repaired, you’ll need to have funds on hand to cover this type of expense.

Maintenance costs are inevitable. So lenders like to see that you have funds sitting in reserve. Many homeowners keep a savings account specifically for home maintenance expenses, whether these are planned expenses (like annual HVAC servicing) or unexpected expenses (like when the A/C suddenly breaks down).     

Are You Looking to Buy?

Our team of well-qualified real estate agents proudly services the Greater Bay Area. But we also have a nationwide network of reputable agents, ready to assist buyers in other parts of the country. If you’re looking to buy a home, you can simply contact us to be connected with an agent who can help you find your new home.

We’re excited to help you on your journey to homeownership!

What is a 1031 Exchange?

Real estate investors benefit from several tax breaks, and 1031 exchanges are one of the biggest tax advantages available! A 1031 exchange allows you to defer taxes on the sale of an investment property. But there are several rules and regulations to be aware of before attempting a 1031 exchange.

Here is what you need to know about 1031 exchanges.

1031 Exchange Explained

A 1031 exchange is when you trade an existing investment property for a like-kind investment property, rather than selling it outright and collecting your proceeds.

The purpose of a 1031 exchange is to defer capital gains taxes from the sale of an investment property. By rolling your proceeds into a new property, you do not realize the gains from the sale, therefore, you don’t get taxed on those gains. This leaves you with more of your proceeds to invest in your next deal. And you can repeat this process as many times as you like, delaying your tax liability indefinitely.

Here’s how a 1031 exchange works: you identify your relinquished property (the property you will be disposing of) and your replacement property (the property you will acquire), and you name a qualified intermediary to handle the funds during the exchange. This ensures that your properties qualify for the exchange and that all proceeds are kept out of your hands during the transaction. Then, you file the appropriate forms with your next tax returns to document the deferment of your capital gains tax on the sale of the relinquished property.

1031 Exchange Rules

Taking advantage of a 1031 exchange requires playing by the rules. Here are the main rules of a 1031 exchange:

1. The properties must be like-kind. Like-kind is a vague term, and it can be liberally interpreted. Generally, you can exchange properties that are in the same general asset class. A residential property for a residential property, or an industrial property for an industrial property, for example.

2. Both properties must be held as investments. Primary residences and vacation homes don’t qualify.

3. To defer the full amount of your taxes, you can’t receive any cash or any debt reduction. This generally means that your new property must cost more than your last property, and your new property needs to be financed with at least as much debt as you have in your current property.

4. You must identify your replacement property within 45 days of closing on the sale of your relinquished property. You are allowed to choose up to three properties as potential replacements, but you must purchase one of those properties.

5. You must close on your replacement property within 180 days of closing on the sale of your relinquished property. Because the closing process typically takes at least 30-60 days, you’ll want to get your replacement property under contract well before the 180-day mark following the sale of your relinquished property.

Is a 1031 Exchange Right for You?

If you’re a real estate investor who wants to grow your portfolio while deferring capital gains taxes, a 1031 exchange might be a great fit for you. It’s always best to have a certified accountant review your finances and your real estate portfolio to assess your tax liability and advise you on tax matters.

If you’re ready to level up your investment portfolio, contact the real estate experts here at Sequoia Real Estate. Our team can help you find a buyer for any property you’re ready to sell, as well as new properties with exceptional return potential. Put our experience to work for you today!

5 Home Renovation Projects that Add Value to Your Home

Are you looking to boost the value of your home this year? Maybe you’re ready for an upgrade yourself, or maybe you’re looking to maximize your resale value. Either way, we have five home renovation projects that will add instant value to your home.

1. Kitchen Remodel

Your kitchen offers the biggest bang for your renovation buck. While most rooms are just floors, walls, and ceilings, your kitchen is full of personality! Cabinets, countertops, appliances…there are so many opportunities to impress…or disappoint.

The secret to a profitable kitchen remodel is to match the quality of the materials to those expected in your market. If homes in your area are comfortable with high-end laminate counters, you’re probably not going to recoup your investment by installing quartz. But if buyers in your demographic expect stone counters, a laminate would leave them wanting. Your countertops, fixtures, and appliances should all be suited to the buyers in your area to get the best returns on your investment.

2. Upgrading the Bathrooms

Similar to kitchens, bathrooms provide lots of opportunities to incorporate personality. The vanity, tub/shower, toilet, faucets, and light fixtures all make a big difference in the impression your bathroom makes on visitors and potential buyers.

Upgrading the bathrooms to match current home decor standards for your local market is one of the best home renovation projects for adding value to your home.

3. Boosting the Curb Appeal

The view of your home from the street is the first impression people get of your home. If you’re considering selling, curb appeal is especially important because the photos of the front of your home will be published across multiple home search websites, enticing potential buyers to click on your listing.

A fresh coat of paint is an inexpensive way to add value to your home. Clean, well-maintained landscaping can also make the home feel more inviting.

4. Improve Energy-Efficiency

Energy-efficient homes are in demand, not only because they help protect the environment, but also because they reduce utility bills. There are a few ways you can increase the energy efficiency of your home and boost your home’s value, including:

• Adding solar panels to generate solar energy.

• Upgrading to energy-efficient appliances.

• Changing from old single-pane windows to double-pane windows, which provide better insulation.

5. Add an ADU

Since Governor Newsom signed legislation allowing property owners to build accessory dwelling units (ADUs) on their single-family lots, homeowners have been cashing in! You can convert a garage space or spacious shed into a rental unit, for example. Or even build a new dwelling from the ground up. California homeowners can generate passive rental income from their ADUs, which adds value to the property as a whole.

Find Out What Your Home is Worth

Has it been a while since you last had a real estate professional provide a value estimate of your home?  Contact the experts at Sequoia Real Estate today for a free, zero-obligation estimate. We can even discuss home renovation options that could maximize the value of your home. Contact us today!

2023 Housing Market Forecast

2022 has been a transitional year for real estate in Northern California. The buying frenzy of the pandemic era was quelled by soaring interest rates.

Is this an indication of what’s to come in the year ahead?

Here is your 2023 housing market forecast, complete with five things to watch for in the coming year.

1. Low Inventory

The California housing shortage continues. Between geographic barriers to building, high costs of labor and materials, and interrupted supply chains, there have not been enough new homes built to meet the demand of buyers in Northern California. Additionally, more homeowners are opting to age in place rather than downsize, which is keeping existing homes out of the active market.

With higher interest rates and increasing costs of labor and supplies, it is unlikely that new construction will make much of an impact in adding new inventory to the housing market in 2023.

2. Comparatively High Interest Rates

In an effort to curb inflation, the Federal Reserve raised Interest rates from 3.45 percent in January 2022 to 6.90 percent by October 2022. Increasing interest rates mean higher monthly payments and greater interest expenses for home buyers. And the recent rate hikes have deterred some buyers from making the leap to homeowner in 2022.   

For 2023, rates are likely to stabilize somewhere between six and eight percent. While this is higher than the three-to-five-percent range we had gotten used to over the last few years, it’s still low compared to the nine percent of the early 1990s and the 16 percent of the early 1980s. It’s important for buyers to remember that you don’t have to lock into your interest rate for the entire term of your loan. You can opt for an adjustable-rate mortgage, which will automatically change with the market, or you can refinance if rates drop in the future.

3. Stabilized Demand

The high interest rates might prevent some buyers from entering the market, but because of the low inventory, there is still steady demand for the available homes. Don’t expect the bidding wars of 2021, but don’t expect a lack of buyer demand either. Northern California is still a highly desirable area, attracting potential buyers from all over the US due to the strong employment market, solid educational institutions, and high quality of life.

4. Longer Time on the Market

In November 2022, the average Alameda County home took 24 days to sell. This indicates that we are returning to the “normal” pre-pandemic market, in which a more balanced supply and demand resulted in a reasonable 21 days on the market for the average home. Homes are still selling quickly, but not so quickly that buyers have to scramble, waive contingencies, and offer far more than asking price. For comparison sake, at the height of the buying frenzy in both 2021 and 2022, homes sold in just 9 days on average.

By the national average of 37 days, homes still sell quickly throughout much of Northern California, particularly the Bay Area. Homes will likely continue to sell quickly, just not as quickly as we have seen in recent years.

5. Lower Prices

Prices have started to dip across much of California. Part of this dip is the normal lull that comes during the winter when fewer buyers are in the market. But in some markets, this dip is an indication that prices had gotten too high, and the market is correcting itself to more reasonable price points.

As demand returns to pre-pandemic levels, prices will likely reflect this stabilized demand by dipping temporarily. If you’re looking to buy, you might be able to get in while prices are temporarily reduced in 2023.

Are You Looking to Buy or Sell in 2023?

If you’re considering selling your home or purchasing a new home (or both!) in 2023, you need an expert real estate agent that understands the changing market and will negotiate aggressively on your behalf to get you the best price and best terms possible. Contact Sequoia Real Estate today for a free consultation with one of our experienced real estate professionals!

10 Things to Look for When Buying a Home

You may be aware of the red flags to look for when buying a home, but what are the green flags that homebuyers should be watching for?

The real estate experts at Sequoia Real Estate are counting down the top 10 things to look for when buying a home.

10. Room to Grow

Many buyers make the mistake of purchasing a home that meets their current needs, without regard for their future needs.

If you are planning on having children in the next few years, for example, a one or two-bedroom home might not be large enough.

Having said that, your ideal future home might be out of your current budget. Don’t let that stop you from buying. Most people go through a natural progression for this very reason. You might have a starter home, then a larger family home, followed by your dream home. The goal isn’t to buy a home that you’ll never outgrow; just to find a home that will grow with you for the next several years.   

9. Energy-Efficient Upgrades

Energy-efficient appliances and windows can save you money in the long term by reducing your energy bills. While you could always install these yourself, the upfront expense can be substantial. So if you don’t have the cash available for these upgrades, you might want to see if you can find a home that comes with them.

8. Storage Space

Pay attention to pantries, closets, basements, attics, and garages that provide extra storage space. Most buyers underestimate how much storage space they will need. And, if you somehow end up with extra storage space, you can rent out that space as a house hack!

7. Sound Moisture Barriers

Water intrusion can mean big problems in a house. The better the barriers against moisture, the lower your risk of water damage and/or mold. So look for a leak-free roof, sound weather stripping, and appropriate sealings in bathrooms and kitchens.

6. Proper Grading

Speaking of water intrusion, the grading of your lot makes a big difference in how water flows away from (or to) your house. You want the land to slope gently away from the house. This will help carry rainwater away from the structure to prevent possible water damage.

5. Reasonably New Heating and Cooling Systems

Heating and cooling systems are high-ticket items that are expensive to replace. If you have the cash available, you can install a new system in any home. But if the home purchase will take most of your available cash, it’s probably best to find a home with systems that won’t need to be replaced for several years.

4. Signs of Regular Maintenance

Unless you’re specifically looking for a fixer-upper, you want to look for a home that has been well-maintained. Check for cleanliness and functionality of minor things, like lighting and door hinges, to confirm that a house is well-maintained.

3. Safe Electrical Work

Between the time you get an offer accepted on a home and the time you close on it, you’ll have the opportunity to have a home inspection completed. Part of the inspection will include a review of the electrical work to make sure it’s up to code. But you should look for signs of safe electrical work while looking at homes. Check the breaker box to see what kind of condition it’s in. And be wary of any exposed wiring.

2. “Good Bones”

Having a sound structure is critical. You want to make sure the foundation is solid, as are all supporting frames in the house. Your home inspector will be able to check all visible areas to confirm that the structure is strong. It is possible to have a strong structure even if walls or floors are uneven. But if you see window frames bowing or doors hanging askew in their frames, you might have a structural issue.

1. Location, Location, Location

Real estate is all about location. Generally speaking, the worst house in the best neighborhood is more valuable than the best house in the worst neighborhood.

A “good location” can come from any or all of the following:

• A stable or growing neighborhood.

• Proximity to employment opportunities, shopping, dining, and entertainment.

• A high-performing school district.

• A quiet street (cul-de-sacs that don’t have thru traffic are especially valuable).

Are You Ready to Look for a New Home?

When you’re ready to make a move, contact Sequoia Real Estate to get an experienced real estate agent in your corner!

How to Achieve Your Resolution of Buying a Home in 2023

Is buying a home on your list of resolutions for 2023? Here are three easy steps to help you become a homeowner in the new year.

1. Get Pre-Approved for a Home Loan

Getting pre-approved for a home loan means having a lender review your finances to determine how much you can borrow to buy a home. This should be the first item on your to-do list for two reasons.

1. Pre-approval helps you set a realistic budget. The last thing you need is to fall in love with a home and then realize that you don’t qualify for a large enough loan to buy that home. With pre-approval, you’ll be able to search in the appropriate price range from day one.

2. Being pre-approved strengthens your offer by showing sellers that you qualify for the financing needed to close the deal. This makes sellers more likely to accept your offer. If you get pre-approved early, you’ll be able to confidently make an offer when you find the right home.

It's fairly easy to get pre-approved with a lender online. If you need a recommendation for a reputable lender, contact the real estate experts at Sequoia Real Estate for a referral.

2. Automate Your Down Payment Savings Plan

Depending on your finances and your loan type, you’ll likely need a down payment of around 3-10% of the purchase price (the pre-approval process will give you a more specific figure based on your unique circumstances).

One of the best ways to make sure you save enough is to set up automatic transfers. You can instruct your bank to automatically transfer a set amount to a special savings account every payday. This foolproofs your savings by eliminating the need to remember to transfer funds manually. And because the money is transferred as soon as your paycheck is deposited in your bank, you’re not tempted to spend it on other things!

Check out our Down Payment Savings Plan for more tips and tricks to make saving easier.

One more note on down payments: It is possible to get a home loan with no down payment. If you’re a military service member or veteran, or you’re considering buying a property in a rural area, you might qualify for a no-down-payment VA or USDA loan.

3. Get an Agent in Your Corner

A good real estate agent does so much more than just show you houses! Buyer’s agents can keep you posted on new listings that meet your criteria (those with good connections often learn of new listings before they even hit the market, which can give you an advantage over other buyers). Your agent can also advise you on a fair offer price, negotiate on your behalf, explain the purchase contract to you, and coordinate the inspections and appraisals needed to close the deal successfully.

Even better, in a typical real estate transaction, the seller pays all real estate agent fees. This means that your buyer’s agent is compensated by the sellers, and you don’t have to pay for professional representation.

If you’re planning to become a homeowner in 2023, you can start working toward that resolution today by contacting Sequoia Real Estate to be connected with a well-qualified buyer’s agent!

The 10 Biggest Mistakes Real Estate Investors Make

Despite any short-term surges and stalls, real estate is still considered one of the best long-term investments available. Real estate can provide passive cash flows, ongoing tax breaks, and appreciation over time. And, unlike stocks and bonds, real estate offers tangible assets for investors.

But real estate investments aren’t immune to mistakes made by investors. Real estate mistakes can cost you time, money, and frustration.

So, before you jump into the real estate investment market, consider these 10 biggest mistakes real estate investors make (and how to avoid them!).

Mistake #10: Failing to Set Specific Goals

When you don’t set specific goals, it’s impossible to maintain control over the direction of your investment portfolio.

What do you want to get out of your investment? If your goal is passive income, long-term rentals are probably your best option. If your goal is to maximize income, and you don’t mind actively managing your property, short-term vacation rentals might be a better fit. And if you’re looking to get in and cash out quickly, a fix and flip might suit you.

Getting clear on these goals upfront will direct your investment decisions.

Mistake #9: Skipping the Research Phase

Research might not be the most fun part of investing, but it’s necessary. As a real estate investor, you need to know your investment options, know what to look for in a property, understand your local market, and understand real estate financing.

Investing time in learning these basics will lead to more profitable ventures.

Mistake #8: Waiting for “Perfect”

Many people want to be real estate investors, but they’re waiting for the perfect market conditions or the perfect property.

There is no “perfect” in real estate. Timing the market is impossible as peaks and valleys are only evident in hindsight. And all properties have their imperfections. Your job is simply to find a property with strong yield potential that works for you under current market conditions.

Mistake #7: Settling for Unfavorable Financing

There are several options for financing real estate investment properties. And the wrong financing can eat into your profits. Contact multiple lenders and ask about different loan options available to you before committing to one.

Mistake #6: Over-Improving

New real estate investors often get over-excited about adding value to their properties. But high-value features added to a mid-market property will probably produce poor returns. Your target market might not be willing to pay for quartz countertops, jacuzzi tubs, or top-of-the-line appliances. So keep your renovations in line with market expectations.    

Mistake #5: Ignoring Renter-Relations

Renter turnover is expensive. In addition to the vacancy loss between renters, you’ll have marketing costs to find and screen new renters, as well as the cost of making the unit ready for the next renter. So it’s in your best interest to keep your renters happy, even if it comes at a small cost.

For example, rather than hiking up rental rates to full market value for each renewal period, give your renters a reasonable discount to entice them to stay.

Mistake #4: Under-Insuring the Property

When new investors see insurance premiums on their expenses, it’s tempting to try to reduce the expense. But this property is a high-value asset that deserves protective coverage. Make sure you’re carrying enough coverage on your properties so that you’ll be able to weather unexpected damages or injuries.

Mistake #3: Ignoring Local Market Trends

Understanding your local market is critical to your success as an investor. Does your property meet the needs of your local market?

In California, for example, where rents are high, more renters are opting to co-live with multiple roommates, which brings down the rent per person. But this growing niche needs properties with 3-5 beds and baths, rather than the standard 1-2 bedroom apartment of the last generation.

The investor who can identify market needs and meet them is rewarded with higher returns.

Mistake #2: Underestimating Expenses

Your investment property will cost more than just your mortgage loan payment. You’ll also need to cover property taxes and insurance, as well as maintenance and vacancy losses. It’s imperative that you maintain a “slush fund” of cash available for unexpected expenses like appliance repair or plumbing emergencies.

If you’re going to be renovating or flipping, accurate cost projections are even more important. Once you set your budget, add 5-10% to account for expenses that you simply haven’t thought of yet.

Mistake #1: Not Hiring a Real Estate Agent

Getting the purchase and sale of your properties right is key to your success. And the biggest mistake real estate investors make is thinking that they can save money by cutting out the real estate agent.

Some sellers think that they can pad their profit margins by selling the property themselves. But this nearly always backfires. Homes sold without an agent consistently take longer to sell and sell for substantially less than homes sold through an agent.

As a real estate investor, you deserve the best representation in your real estate transactions. Sequoia Real Estate provides world-class service to buyers, sellers, and investors in Northern California. With Sequoia, you’ll always have a trustworthy, knowledgeable advisor in your corner to help you find new deals and help you maximize the profitability of your investments.

Contact Sequoia today for a professional consultation with no cost or obligation.     

7 Benefits of Owning an Investment Property

Have you ever considered owning an investment property?

Investing in real estate is a smart decision, particularly when it comes to income-generating rental properties.

In this article, we’re going to discuss seven key benefits of owning an investment property.

1. Passive Income

Perhaps the greatest benefit of owning an investment property is the rental income generated by the property. As long as your monthly rent covers your monthly mortgage and operating expenses, you get to pocket the difference as income.

If you choose to manage the property yourself, you will need to invest some time and energy in activities like finding renters, collecting rent, and arranging maintenance services. But you also have the option to hire a property manager to handle the day-to-day operations on your behalf, making your income purely passive.

2. Appreciation

Real estate values naturally increase over time due to the inherent scarcity of land. By owning an investment property, your net worth grows as your property becomes more valuable. You’ll be able to capitalize on this appreciation in the future when you’re ready to sell. Or you can capitalize on your increase in equity by borrowing against the equity to purchase a new rental property and expand your portfolio.

3. Tax Advantages

Rental properties provide multiple tax benefits. First, you can deduct qualified property expenses from your income taxes. Secondly, you can claim depreciation each year, which also reduces your income tax burden. You also have the option to take advantage of 1031 exchanges to defer capital gains tax on the sale of a property, which allows you to grow your real estate portfolio faster.

4. Flexibility

Owning an investment property gives you options. You can rent the property to long-term renters or maximize the nightly rate by making your property a short-term vacation rental (local law permitting). You can occupy the property yourself if it suits you down the road, or you can allow friends or family to stay there for a time. You might even build an ADU on the property to create a whole new income stream.

5. Diversification

Owning real estate allows you to diversify a traditional stock-and-bond investment portfolio. Diversification is important as a means of mitigating risk. If your stock portfolio stumbles, for example, you still have rental income, appreciation, and tax breaks from your real estate holdings to buoy your overall investment portfolio.

6. Hedge Against Inflation

Real estate acts as a hedge against inflation because property values typically rise with inflation. Even better, inflation drives increases in rental rates, which can boost your rental income to help you weather rising inflation.

7. Tangibility

Unlike many other investment options, real estate is a tangible asset. Stocks, bonds, and even cash itself are only valuable as long as we collectively agree that there is a value assigned to them. Uncertainty in the value of such securities can cause the value to plummet. But with income properties, you have a plot of land and a structure that can’t simply evaporate because of a lack of trust.

Are You Ready to Buy Your First Investment Property?

Take our five-question quiz to determine if you’re ready to buy your first investment property. And when you decide you’re ready, contact the real estate experts here at Sequoia Real Estate. We can help you find suitable properties and negotiate the best price and the best terms to get your new investment a successful headstart!

How to Get Cash Out of Your House Without Selling

If you’re sitting on substantial home equity (as so many of today’s homeowners are), you might be wondering how to access the cash value that’s currently tied up in your home.

There are many reasons to tap your home equity, including:

• Paying medical bills,

• Covering education expenses,

• Financing home renovation projects,

• Building an ADU on your property for passive income, or

• Buying a new home or investment property.

Whatever your reason, you have value sitting in your home equity; you just need to access it. And we’re going to give you five ways to get cash out of your house without selling.

Why Not Sell?

In many cases, selling is the best course of action. You can sell the property, pay off any reminding mortgage balance, and collect your proceeds to spend as you like. But the expert real estate advisors here at Sequoia Real Estate realize that some homeowners simply aren’t ready to sell. Maybe you have dreams of raising your family in the home or spending your retirement there.

We respect that choice, so we want to give you options for cashing in on your home when you’re not ready to sell.

5 Ways to Get Cash Out of Your House Without Selling

Here are the top five ways to cash in on your home equity without selling.

1. HELOC

A HELOC (Home Equity Line of Credit) is a revolving credit line that you can use as needed. Similar to a credit card, you get approved for a maximum limit, and you can borrow against that limit and pay it off in monthly installments.

This is a good option for homeowners who want to be prepared for unexpected expenses. You’ll have peace of mind, knowing that you’ll be able to quickly and easily turn a small percentage of your home equity into cash at a moment’s notice.

2. Home Equity Loan

A home equity loan is a one-time occurrence of borrowing against your home equity. You’ll receive a lump sum that can be paid back in monthly installments. Unlike a HELOC, a home equity loan is not a revolving credit line, so you won’t be able to pull cash out over and over.

Home equity loans work well for homeowners who need a large lump sum. This could be used as a down payment on an income property or to finance major renovations for your current home.

3. Cash-Out Refinance

With a cash-out refi, you completely replace the terms of your current home loan with a new home loan. You could use your new mortgage to pay off your old mortgage, keep a minimum amount of equity in the property (typically at least 20%), then pocket the difference.

It’s important to note that your interest rate would change as part of your refinance. So this option only makes sense if the going interest rate is less than the rate on your current mortgage.

4. House hacking

House hacking is when you find a way to generate income from your home. You could rent out a room, for example. Or convert a portion of the property into a rental unit. You can even rent out storage spaces and parking spaces.

Any homeowner can house hack, regardless of the amount of equity you have in your home. House hacking can be a solid way to get cash out of your house without taking out a new loan or selling.

5. Converting Your Home into a Rental

One final option for getting cash out of your house without selling is to convert your house into a rental property.

This is a good option for homeowners who need to relocate (perhaps for work or to be near family) but aren’t yet ready to sell. If you must move, but plan to return to the home, finding renters will ensure regular income. The rental income might be enough to cover your mortgage and operating expenses, plus put a little cash in your pocket each month!

Sequoia Real Estate is Here to Help!

Whether you’re ready to sell, need help converting your home into a rental, or just need a recommendation for a reputable lender to refinance your home, the experts at Sequoia Real Estate can help.

Contact Sequoia today for a free, professional consultation to see what we can do for you in your real estate journey.      

What Do ADU Bills Mean for California Homeowners?

In September 2022, Governor Newsom signed Senate Bill 897, the final bill in a series of ADU-related bills that the Governor has been passing since 2016.

But many Californians are still unclear on what these ADU bills do, and what they mean for local homeowners.

In this article, the real estate experts at Sequoia Real Estate are going to give you the details on ADUs and what ADU bills mean for California homeowners.

What is an ADU?

An ADU (Accessory Dwelling Unit) is a housing unit on a single-family lot that is separate from the main house. ADUs have many names and can take many forms.

Common names for ADUs include:

• Guest houses

• In-law suites

• Granny flats

• Casitas

• Gîtes

• Secondary suites

• Pool houses

• Carriage houses

And ADUs can be located:

• In basements

• In attics

• Over garages

• In converted garages

• As stand-alone structures on the property

• In home extensions

• In backyard cottages

What Do ADU Bills Do?

The primary purpose of ADU bills is to allow owners of single-family lots to build a second unit on their property. This might sound like a simple concept, but the logistics of allowing two dwellings on a lot intended for one household required several different senate bills.

First, there were bills to allow these new units to be built. Then bills to regulate the size and type of ADUs. Then bills to fast-track these units through the permitting process. Then bills to require local governments and HOAs to accept reasonable ADUs. This latest bill, SB 897, prohibits local agencies from denying permits for unpermitted structures built before 2018 (except in cases of health or safety violations).

Why Did We Need ADU Bills?

ADU bills were passed to help relieve some of the pressure from California’s housing shortage.

With so much more demand than supply, property values were climbing excessively high, making homeownership extremely expensive for new buyers. And renters were having the same difficulty finding affordable houses and apartments to lease.

Many factors contributed to the housing shortage, including an influx of population growth, a lack of new residential construction, and geographic barriers to urban expansion.

But California’s single-family zoning played a major role in the housing shortage. By limiting lots to one dwelling, we created sprawling, low-population-density cities with limited housing.

ADU bills correct this by allowing property owners to create additional housing units.   

What Can an ADU Do for You?

ADUs can serve CA homeowners in several different ways.

You could:

• Have aging parents live on-site where you can take care of them while allowing them to retain their independence.

• Allow your children to live in the unit while attending college or saving up for an apartment of their own.

• Make co-parenting more convenient post-split by having both parents live on the property in separate residences.

• Maintain a comfortable guest house to provide privacy for visitors.

• Provide housing for a member of your household staff, like the nanny or the housekeeper.

• Use the unit as a house hack by renting out the unit to create a passive income stream.

Whatever purpose your ADU serves, having an ADU boosts your property value by creating additional living space for prospective buyers.

Sequoia Real Estate is at Your Service!

Whether you’re looking to buy, sell, or invest, Sequoia Real Estate is here to make your real estate transactions as enjoyable and profitable as possible. Our team of professional real estate agents has a deep understanding of our ever-evolving market. And with our established industry connections, we can help our sellers find buyers and our buyers find deals!

If you’re ready to join the market, or you just have questions about the market, contact us today for a friendly, no-obligation consultation.     

What Is Home Equity?

Home equity is the value you hold in your home. So if you take the current market value of your home and subtract any debts on the property (like a mortgage balance or any liens), the resulting amount is your home equity.

But there’s a lot more to know about home equity than the textbook definition!

We want to explain the importance of home equity and show you how you can use it to your advantage.

Whether you’re a homeowner or a buyer with dreams of homeownership, here’s what you need to know about home equity.

Why Does Home Equity Matter?

Home equity matters because it directly impacts your net worth. Your net worth is the value of all your assets (real estate, bank accounts, investment accounts, etc.) minus all your debts (mortgages, student loans, credit card debt, etc.). Over time, you want to see your net worth grow as you acquire assets and pay off debts. In general terms, the greater your net worth is, the more financially stable you are.

Your net worth might not play a major role in your day-to-day life. But when you need to make a financial move, like applying for a loan, for example, your net worth will be scrutinized. Lenders like to see that potential borrowers have a solid net worth before issuing a loan. Your net worth can even help you get a lower interest rate on loans!

Your home equity is also important when you’re considering selling your home. Your proceeds from the sale will be your home equity minus closing costs. So the more home equity you have, the more you can make on the sale.

How to Find Your Home Equity

While the home equity formula is simple, actually calculating your home equity can be a little complicated because you need to know the current market value of your home. And that number is a moving target, based on recent sales of similar homes.

As a shortcut, some homeowners check their Zillow Zestimates, but Zestimates can be wildly inaccurate. If you just need a ballpark figure that can be up to 20% off, the Zestimate might work just fine for you. But if you really want to know what the true value of your home is in today’s market, you can always contact the professionals at Sequoia Real Estate for a free, no-obligation value estimate.

Then you just need to know how much you still owe on your property. If you have a mortgage, the remaining principal balance will be on your most recent statement. And if you have any other debts, like a mechanic’s lien (for failure to pay a contractor for work done on the home) or a tax lien (for failure to pay taxes), you will have paperwork showing the amounts due.    

What Can You Do With Home Equity?

There are a few different ways you can tap into your home equity to put cash in your pocket.

First is a home equity line of credit (HELOC). A HELOC is a revolving line of credit that you can use and repay as needed. With a HELOC, you can borrow cash from your home equity for things like home renovations. As a bonus, renovating your home can increase the value of your home, which means your home equity goes up even after you’ve used some of it!

Another option for using your home equity is a cash-out refi. This is when you refinance your existing mortgage to pull out a large lump sum of cash. Part of the refi process is getting a new interest rate and loan term, so you’ll want to pay attention to interest rates before refinancing. This can be a good option if you need cash to go back to school, start a business, make a down payment on an investment property, or pay off high-interest debts.

HELOCs and cash-out refis both allow you to access a portion of your home equity. The percentage of your total home equity that you can access depends on additional factors like your credit score and debt-to-income ratio. Selling your property is the only way to cash out all your equity.

Do You Need to Know How Much Your Home is Worth?

If you need an accurate home estimate to calculate your home equity, contact Sequoia Real Estate today. Our experts will “run the comps” to find the recent sales prices of properties that are comparable to yours. There is no charge for this service. We just want to make sure homeowners are well-informed so they can make sound decisions in the real estate market. We look forward to working with you!

Should I Wait Until Spring to List My House for Sale?

As we get further into the fall and winter seasons, some homeowners are starting to ask should I wait until spring to list my house for sale? It’s a fair question. After all, homes sold in the spring and summer months typically sell faster and for slightly higher prices than homes sold in the fall and winter months.

But there are several benefits to selling your home in the fall or winter. And the 2022 real estate market presents interesting incentives for sellers to list now rather than waiting.

Let’s consider the pros and cons of listing now vs. waiting until spring to sell your house.

The Pros and Cons of Listing Your Home For Sale Now

There are a few compelling reasons to list your house for sale during the fall.

First, inventory is typically lower because fewer sellers want to move during the school year or the holidays. This means you have less competition, so you don’t have to work quite as hard to make your home stand out. You can also appeal to buyers who are on the hunt again after giving up during the high-competition spring and summer months. Plus, by selling your house now, you’ll be ready to look for your new home early in the spring buying season when inventory is higher but buyer competition is still low.

Then, consider our current market conditions as we wind down 2022. The California housing market has experienced enormous growth over the last decade, particularly in the last two years. And now the market is starting to stabilize. In fact, we’re already seeing market corrections to lower price points in many neighborhoods around the Bay Area. And some real estate experts are predicting price drops of up to 20% in 2023 and perhaps into 2024.

These projections may be exaggerated, but it seems likely that your home could be worth more this fall than next spring. Even if the projections are off, today’s market conditions are understood while the market conditions of next spring remain unknown.

The most common downside to listing in the fall is that fewer buyers are willing to move during the school year or holidays, so there is a smaller pool of potential buyers. However, with interest rates rising, buyers are losing purchasing power. So it’s possible that buyer demand will be lower in 2023 than it is today.   

Aside from trying to time the market, what would moving mean for you? Are you ready to start your next chapter? If so, are you willing to put those plans on hold for unknown future market conditions?

The Pros and Cons of Waiting Until Spring to List Your House

Under stable market conditions, homes are shown to sell faster and bring in slightly higher sales prices during the spring and summer months. This is mostly because buyer demand is so high at that time due to buyers working around the school year and the comfortable weather. If you’re making a case for waiting until spring to list your house for sale, that’s it.

The downsides to waiting are the unknowable future market conditions, the higher seller competition of the spring market, and the idea that your life would be in a holding pattern for the next six months or so.

How Sequoia Real Estate Can Help

Whether you decide to list now or to wait until spring to sell your house, the experts at Sequoia Real Estate are here to help! Our listing specialists can answer all of your questions about the selling process and create a custom plan to help your home sell as quickly as possible for as much money as the current market conditions will allow.

Contact us today for a friendly, no-obligation consultation, and see what we can do for you!

What to Do if Your Mortgage Goes Underwater

Being underwater on your mortgage means that you owe more on your home than your home is currently worth. This can happen when property values temporarily decrease or when homeowners miss mortgage payments with compounding interest.

And an underwater mortgage can be scary for homeowners. Your house may be your most valuable asset, and the idea that it could be a liability can be deeply unsettling.

But being underwater on your mortgage might not be as bad as you think. In this article, we’re going to explain what to do if your mortgage goes underwater.

How Common Are Underwater Mortgages?

During the extreme conditions of the Housing Market Collapse, over 35% of California homeowners were underwater on their mortgages. At the end of 2020, only around 1% of CA homeowners were underwater. The percentage is expected to increase as the housing market cools following years of exceptional growth.

What to Do if Your Mortgage Goes Underwater

It’s good to know that you have options if you find yourself with an underwater mortgage. Here are five options to consider.

Option 1: Do Nothing

The most popular option for those with an underwater mortgage is to simply do nothing. Continue making your mortgage payments as usual, and go about your life. In most cases, this is the right move.

Home values might dip temporarily as part of the normal economic cycle of real estate. But those values will always come back up. So as long as you can afford to make your mortgage payments, you can ride out the downturn and profit when values bounce back.

Option 2: Apply for Assistance

If you’re struggling to make your mortgage payments, you might want to apply for assistance. Contact your lender to ask what assistance programs are available for your loan type. The Freddie Mac Enhanced Relief Refinance Program, for example, can change your interest structure to provide some relief while you wait for the market to recover.   

Option 3: Sell the House and Pay the Difference

What if you need to relocate (perhaps for a job opportunity in another market)? You can sell the house at a loss. For example, if you owe $825,000 on your mortgage, but the highest offer you can get is $800,000, you can sell and pay that $25,000 out of pocket. Keep in mind, this $25,000 would be in addition to your closing costs.

We’re not saying this is a good option. But it is, technically, an option. Let’s see if we can find a better option for those who need to move.

Option 4: Request a Short Sale

If you’re in a financial crisis, you can ask your lender for a short sale. A short sale is when the lender agrees to let you sell the house for less than you owe on the mortgage. All of the proceeds from the sale will go to the lender. But the good news is that you can either work out a payment plan for the remaining balance, or you might even get the lender to forgive that balance completely.

Lenders are often willing to forgive the remaining balance because that’s a better financial deal for them than foreclosing on the property. A foreclosure can be a time-consuming and expensive process for the lender, particularly since they would need to find a new buyer to get the property off their books.

Option 5: Convert the Property into a Rental

Depending on your local rental market, and your financial situation, it might make more sense to rent out the property than to sell it.

With high rental rates, it’s possible that your monthly rental income could cover your mortgage payment. This would allow you to retain ownership without any financial burden. And even if the rent doesn’t quite cover the mortgage payment, absorbing a small loss each month might be a better option than selling (assuming you’re financially able to do so).

How Sequoia Real Estate Can Help

Being underwater on your mortgage is not an ideal situation. But it can be manageable when you have trusted real estate professionals in your corner.

The experts here at Sequoia Real Estate are at your service. We can provide free ongoing market updates to help you gauge the market and make sound decisions. Our listing specialists can also help you sell for top dollar or facilitate short sales if you decide that selling is the best path forward.

You’re always welcome to contact us with all your real estate market questions. We’re happy to provide valuable insights through our friendly consultations, with no cost or obligation!

Silly Staging Secrets (and Why They Work!)

Staging your house can help buyers get a sense of what their lives could be like in that space. And when buyers can imagine living their best lives in a home, they’re willing to pay more for it.

So smart sellers take advantage of strategic staging. And while some of the staging secrets used by professionals might seem silly, they work because they build the narrative of lives well lived in the home.

Here are our top five silly staging secrets (and why they work).

1. The Strategic Throw Blanket

If you look at listing photos, you’ll often notice throw blankets laying diagonally all over the house. You’ll see them at the foot of the bed (sometimes topped with a breakfast-in-bed tray), lying across sofa cushions, or draped over upholstered chairs. These throws serve multiple purposes.

First, they can warm up a space, making it feel pleasantly cozy and homey. They can also be used to break up large blocks of colors or patterns on bedding or couch upholstery. But why lay them diagonally rather than fold them neatly? It’s because it gives the impression that someone was just using the blanket and threw it aside casually when you came in. This makes it easy to imagine snuggling up there yourself. You might even see a book on the end table next to the chair or sofa to complete the scene.     

2. Never-Used Fluffy White Towels

You might have “good guest towels” that rarely get used. But most of us don’t keep a neatly folded set of brand-new, perfectly white fluffy bath towels on display. So why do home stagers do this?

The main reason for the towels is that they change the vibes of a space from “bathroom” to “day spa.” They also draw the eye toward them, making the room feel fresh and clean, even if the fixtures are a bit dated or dingy.

3. Fake Plants

You might find fake plants and fake floral arrangements all over a staged home. But hopefully, they’re the high-end ones that buyers might think are real if they don’t look too closely.

Plants bring life into a house. They make the air feel clean and fresh, and they can provide a nice pop of color to contrast a neutral design palette. But living plants require some maintenance. They need to be watered regularly. And they need the right amount of sunlight, which means they can’t survive in dark rooms (the rooms that benefit most from their presence).

So stagers turn to fake plants. These can be placed anywhere and can be completely ignored for weeks or even months. Buyers walking through feel the fresh, clean energy of having plants present, but no one has to care for them.    

4. Freshly Baked Cookies

Baking cookies just before an open house or showing might seem excessive. But that’s exactly what many real estate agents and sellers do.

Most of us have fond memories of baking cookies in our childhood homes. The smell of baking cookies is warm and familiar. And it generally makes a house feel more like a home. And with scent tied so closely to memories and moods, the smell of freshly baked cookies can create instant emotional connections to a home, making buyers more inclined to act.

5. The Host Spread

Have you ever toured a home where the dining table was fully set for a formal dinner? You may have even seen place settings on the breakfast bar or a picnic setting on the patio table. Or maybe just a simple covered cheese plate and a bottle of wine, ready to be poured into the nearby stemware.

These are all designed to help buyers imagine living in the space: enjoying family meals, hosting gatherings, or staying up for a romantic nightcap. Without these staged settings, buyers just see an empty space, and often don’t make the imaginative leap to envisioning how they could enjoy the room. But once they see the space ready to welcome guests, it takes no effort to fantasize about hosting in the home.

Buy or Sell With Sequoia

Whether you’re looking to stage your home for a quick, profitable sale or you’re looking to avoid paying more for your next home because of some clever staging, the real estate experts here at Sequoia Real Estate can help! We proudly represent home buyers, sellers, and investors in the Bay Area, with a focus on exceptional service and results. Contact us today for a friendly, no-obligation consultation!

How Much Does My Credit Score Matter When Buying a Home?

Your credit score is a critical factor in determining whether or not you can qualify for a mortgage loan to buy a home. Lenders use your credit score to see how you have handled credit in the past. Have you made payments on time? Do you keep your debt to a reasonable amount? Have you failed to repay a debt? Your credit score provides a history of your credit usage to lenders so that they can determine how likely you are to make your mortgage payments on time and repay the loan in full.

The experts here at Sequoia Real Estate will break this down to help you understand how your credit score is calculated, what kind of score you need to buy a home, and how you can improve your credit score.   

What is a Credit Score, Exactly?

Your credit score is a calculation of your creditworthiness, based on your credit usage.

The most common credit score calculation method, FICO, is made up of five factors:

1. Payment History (35% of your score): Do you make your debt payments on time? On-time payments improve your score while late payments hurt your score.

2. Amounts Owed (30%): How much debt do you carry? The lower, the better. Try to keep your balances below 30% of your credit limits on each credit card.

3. Length of Credit History (15%): How long have you been using credit? When you open a new line of credit (like a credit card), the date is recorded in your credit report. The longer the account is active, the better. This is why you never want to close a credit card account, even if you don’t use the card.

4. New Credit (10%): Have you recently taken on new debt? This can temporarily lower your credit score while your payment history on this new debt gets established.

5. Credit Mix (10%): What kind of debt do you have? Student loan debt, for example, is weighted differently than credit card debt.

A FICO score of 800 or more is considered excellent. These are the most creditworthy candidates for lenders. 740-799 is very good. 670-739 is good. 580-669 is fair. And anything below 580 is considered poor.

How Does My Credit Score Affect the Homebuying Process?

The most important impact your credit score has on your homebuying is determining whether or not you qualify for a home loan. For a conventional home loan, most lenders require a credit score of at least 620. Some lenders will offer an FHA home loan to buyers with credit scores as low as 580. You might even be able to qualify for an FHA loan with a score as low as 500 if you’re able to make a bigger down payment.

More than just qualifying for a loan, your credit score is a factor in determining the interest rate on your home loan. A higher credit score gets you a lower interest rate. And a lower interest rate means a lower monthly mortgage payment and less money spent on interest over the term of your loan. A lower interest rate can save you hundreds of dollars every month!

How Can I Improve My Credit Score?

If you’re not happy with your credit score, there are a few things you can do to improve your score.

• If you have any accounts in default, contact those creditors to see if you can make a deal. They might be willing to remove the default from your credit report if you pay the balance (or even a negotiation portion of the balance).

• Contact creditors where you have a current past-due balance and ask them if they can remove the mark on your credit if you make the payment right away.

• Pay down large credit card balances to get your balances below 30% of each card’s credit limit.

• Continue making all payments on time.

Sequoia is Here to Help!

The real estate experts here at Sequoia Real Estate never tire of making homeownership accessible to Californians in the Bay Area. We can connect you with reputable lenders who can help you decide on the right home loan type for you. Contact us today to speak with a licensed real estate professional about your homebuying goals!

4 House Hacking Strategies for Homeowners

You may have just started hearing about house hacking over the last few years, but homeowners have been using this little trick to help cover housing expenses for hundreds of years!

House hacking simply means finding a way to generate income from your home. And house hacking provides several benefits to homeowners, including

• Cash to help pay off your mortgage or help with living expenses

• Increased home equity through a combination of debt pay-off and long-term appreciation

• Tax deductions for the cost of repairs, improvements, and depreciation on the rented portion

But there’s more than one way to hack a house. In this article, we’re going to show you four house hacking strategies.

1. Renting Out a Room, In-Law Suite, or Guest House

Many options are available if you have some living space to spare on your property. For example, you could rent a room to a local college student for the school year. Or, if you have a private in-law suite, casita, guest house, or pool house, you could rent this out to long-term tenants for consistent income or as a short-term vacation rental.

Some property owners are even building new structures, called Accessory Dwelling Units (ADUs), specifically for this purpose. Since Governor Newsom signed the ADU and Housing Reform Bills in 2019, lots that are zoned as single-family can legally accommodate two families through these ADU structures. You could even convert garage or attic space into an ADU if you don’t have the land space available to build a unit on.

Just be aware of local laws if you plan to offer a short-term vacation rental like an Airbnb. San Francisco short-term rental law, for example, says that vacation rental owners must register with the Office of Short-Term Rentals. And there are time limits on how long your guests can stay.     

2. Buying a Multi-Family Property Instead of a Single-Family

This is considered the original house hacking method. Homebuyers would choose to purchase a small multi-family building rather than a single-family home. The owners would live in one of the units and rent out the other units, using the rental income to cover their mortgage payments. This way, the owners had housing without paying housing costs out of pocket.

And this still works today. Buying a building with up to four units is more accessible than you might think. The financing generally works the same way as with single-family home loans, and you can include the projected rental income to help you qualify for the loan. If you happen to be a qualified military service member, veteran, or surviving spouse, you could even buy a multi-family property with a 0% down VA loan!

3. Renting Out Storage Spaces

If the idea of living in close quarters with renters doesn’t appeal to you, you can still house hack by renting out storage spaces on your property.

Attics, basements, garages, sheds, barns, and even parking spaces can all be rented out for cash. The income won’t be as high as renting out living spaces, but the turnover is typically low, and this income is about as passive as you can get!

4. A Live-in fix-and-flip

Unlike the other house hacking strategies on this list, a live-in fix-and-flip doesn’t require renting out any space. It simply means buying a bit of a fixer-upper, renovating while you live on-site, and selling for a profit. Fixing and flipping has proven to be a lucrative real estate investment model. And you gain a few advantages living on the property during the flip:

• You’ll only have one housing payment. This is different from most flips, where the investor pays the mortgage on the flip plus their own separate housing costs each month.

• Since you’re not paying two housing costs, you can afford to take your time with the renovation.

• You’ll be able to keep an eye on the property round-the-clock.

• Since you will be living on the property, you can use government-backed loans that apply only to primary residences.

The downside is that you live on a construction site for those few months. Some flippers don’t mind this. And some choose to bring a camper onto the property for a comfortable living quarter away from the construction area. This inconvenience may be well worth it when you cash in on your sweat equity!

Sequoia is Here for all the House Hackers, Investors, and Homeowners

Are you looking for a house you can hack? Or maybe just a space to call home? Either way, the experts at Sequoia Real Estate are here to help you. Contact us today to speak to a well-qualified real estate agent who can help you buy, sell, or invest with success!

Why Real Estate Is the Perfect Investment During Periods of Inflation

Inflation has gotten out of control over the past two years, reaching an increase of over 9% in June 2022. This means that the average good or service costs 9% more this summer than it did last year.

And this kind of inflation can be devastating, particularly when incomes aren’t keeping pace with quickly rising expenses.

But, if you own real estate, you have a bit of protection against high inflation. In this article, we’re going to explain why real estate is the perfect investment during periods of inflation.

What Happens to Real Estate During Inflation?

Inflation generally has a direct relationship with real estate. This means that the value of real estate usually rises when inflation rises. And this provides three benefits to property owners.

1. Property Values Increase. As the cost of goods and services increases, so does the value of real estate. In June of 2022, for example, the median sales price in Oakland was up 10.2% from the previous year.

2. Rental Rates Increase. Similarly, rents generally rise with inflation. Sticking with the Oakland market, one-bedrooms are up 10% year-over-year.

3. Your Mortgage Debt is Devalued. By definition, inflation means that $1 is worth less today than it was a year ago; that dollar won’t go as far today as it would have last year. And it’s the same for your debt! The amount of mortgage debt you owe is worth less now than it was last year, even if you ignore all the payments made over the past year to pay down the debt.

So, Is Inflation a Good Thing for Homeowners?

Manageable inflation of 1-3% is a good thing because it means the economy is growing at a sustainable pace. While real estate acts as a hedge against inflation for property owners, it’s still better for everyone if we keep inflation rates reasonable.

What About Deflation?

We’re starting to see inflation come down. This is mostly thanks to an intervention by the Federal Reserve. The Fed raised interest rates, which made it more expensive to borrow money, which put a damper on buyer demand. This means that real estate values might lose a bit of the impressive gains made over the last two years.

And that’s okay! Real estate is generally a long-term investment, and values will always come back up. Even if you see negative inflation, also called deflation, real estate is still considered a safe investment because of its inherent scarcity.

Take the Great Recession of 2007 as an example. The purchase price for the median American home in the first quarter of 2007 was just over $250,000. Then the economy (and the housing market) collapsed, bringing the median value down to $208,000 by 2008, and leaving millions of American homeowners owing more on their mortgage than their house was worth. This was a worst-case scenario. And yet, the median today is over $440,000. It took over five years for the market to fully recover from this catastrophe. But real estate values came back. And then they surged higher!

Should You Buy Real Estate While Inflation is High?

The biggest beneficiaries of real estate inflation are the owners who bought before the inflation began. But don’t let that stop you from creating your own real estate inflation hedge for the next inflation cycle!

While it is possible that home prices will dip temporarily as we close out 2022 and enter 2023, it’s also incredibly likely that interest rates will continue to rise. And this could make your monthly mortgage payment higher, even if your purchase price is lower.

If you’re on the fence about buying, contact Sequoia Real Estate to go over financial projections with an experienced real estate expert. We can give you an idea of how much your mortgage payments would be under today’s market conditions and how much they could be as interest rates rise.

There’s no cost or obligation for this friendly consultation. We just want to make sure you have the information you need to make a solid decision when it comes to buying real estate. Contact us today!